JOURNAL: Corporate Armies in Russia

Here's another datapoint on the privatization of warfare. The Russian Duma just passed a bill that would allow the energy monopolies, Gazprom and Transneft, to build their own security forces (with greater powers than that normally afforded security firms). This is particularly interesting given that 1) Russia now uses its energy exports/pipelines as its primary tool of strategic power projection, 2) the government has become a corporatist klepocracy centered around the energy industry. Some interesting quotes:

"A couple of terrorist acts and an ensuing ecological catastrophe would be enough to immediately declare Russia an unreliable partner and supplier of energy." Alexandr Gurov, the Duma deputy that drafted the bill, to Carl Mortished at the UK Times.

"Pandora’s box . . . This law envisages the creation of corporate armies. If we pass this law, we will all become servants of Gazprom and Transneft." Gennadi Gudkov, a Duma deputy who opposed the bill.

We can expect these new armies to quickly expand their operations abroad over the coming years. They may even become exporters of security (although given Russia's recent history, the more likely outcome is that these new private military forces will be used to damage alternative/competitive suppliers and coerce recalcitrant customers). Just another step down the long tail of modern warfare, where every fount of cash flow with a desire to extend and protect it is armed with its own military.

NOTE: NATO, in its quest to remain relevant, is eyeing a role as a provider of security oil companies/oil exporting states (these companies will likely be responsive given that another Shell oil platform was attacked today in Nigeria).

Comments

[Duncan Kinder]

Question:

We are positing that corporations are going to transcend national governments.

Problem:

If I invest $1,000.00 in Blackwater and - for whatever reason - Blackwater goes broke ( like Enron ), then the most I stand to loose is that $1,000.00. Blackwater's creditors would not be able to proceed against me. This is called the limited liability of corporations. I would be most reluctant to invest anything in Blackwater - or AT&T for that matter - unless that limited liability existed.

There are economic organizations, such as partnerships, where there is no limited liability. If I were a partner in Blackwater, I could loose my house, my car, and everything else.

Limited liability exists because the state has decided to shield corporations from unlimited liability. As the state declines in value, the weaker this shield would become. Blackwater would eventually reach the point where its mission would not only be to defend others but also to defend itself. And this would inhibit its ability to raise capital.

[Bill Moore]

Duncan, that is one of the more interesting posts that I have seen here. I see that the nation state "seems" to be losing its traditional powers, or at least outsourcing them, but I wonder to who's advantage that is in the long run. Your comments on corporate protection is a perfect example of why some will still clamor for the protection that a nation state can provide. However, in the example you gave, if the corporation was a multinational, who could legal force its members to pay? To give up their homes, cars, etc.? I'm not a legal expert, but it seems being a multinational could have its advantages also.

[Duncan Kinder]

"However, in the example you gave, if the corporation was a multinational, who could legal force its members to pay?"

Let me put it to you this way, in the Godfather series, the limited liability status of the Genko Olive Oil Company was pretty academic in assessing the actual risk assumed by its backers.

To the extent that John Robb is correct, it would appear that corporate backers, generally, would effectively become Genkoized.

Which would, I believe, constrain the free flow of capital in the financial markets.